The UK Financial Conduct Authority has fined financial advisor network Sesame £1.6 million for setting up a pay-to-play scheme.
The UK Financial Conduct Authority has fined financial advisor network Sesame £1.6 million ($2.56 million)for setting up a pay-to-play scheme.
The regulator said that Sesame’s arrangement effectively undermined the ban on commission payments brought in by the Retail Distribution Review.
According to the FCA, as a result of the pay-to-play scheme, the range of products recommended to Sesame clients under its restricted advice service was influenced by the amount of services Sesame had sold to product providers.
The FCA found that Sesame promoted its own commercial interests over the interests of its clients.
“Firms can have had no doubt about the outcomes we were looking for here. Sesame's approach to inducements, in the face of a clear position from the regulator, undermined the rules in order to look after its own interests,” said Tracey McDermott, director of enforcement and financial services at the FCA.
“If we are to move on in financial services we must see firms focusing on how they achieve the best outcomes for their customers – not adopting practices that avoid our rules,” she added.
When the RDR was introduced in 2013, paying commission to advisors for selling a retail investment product was banned to ensure that customers receive advice which is not influenced by commission paid to advisors and that product providers compete on the price and quality of their products.
Following its implementation, Sesame decided that its network of advisers would offer a restricted service, meaning advisors could only offer a restricted number of products from pre-selected providers (known as a panel).
To establish these panels, Sesame ran a tender process during which the firm told a number of providers that it expected them to spend an extra £250,000 a year on services to be placed on one of Sesame’s restricted advice panels.
“As a result of the tender process, inclusion on restricted advice panels was influenced by how much providers were willing to pay Sesame for additional services. This practice had the effect of undermining the ban on commission payments,” the FCA said.
As Sesame settled immediately, it qualified for a 30 per cent discount on the fine.
“We recognise that the arrival of the FCA’s Retail Distribution Review introduced a step change in regulation and heralded a new relationship between product providers and distributors. As the market leader, we should have been more responsive to the wind of change blowing through our industry,” said John Cowan, SBG executive chairman.
“In January 2014, the leadership was changed and the new executive team has been implementing a new and more transparent policy, as well as building a robust operation that will serve customers better in the future. This has led to significant improvements in our processes and controls, with customers’ best interests and quality outcomes placed firmly at the centre of all business decisions,” he added.